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Thursday, 25 March 21
'OMNIBUS LAW' REGULATION ON INDONESIA’S ENERGY AND MINING SECTORS TO BOOST COAL PROCESSING BUT ALSO RAISES QUESTIONS - ABNR
 February 2021 saw the issuance of a raft of new government regulations to give effect to the reformist Job Creation Law (colloquially known as the Omnibus Law), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors.
The government has issued a new regulation to give effect to the provisions of the Omnibus Law[1] relating to the mineral, coal, geothermal and power sectors. While the regulation makes some important changes, the overall purpose appears to be primarily to codify existing secondary legislation governing the relevant sectors.
The new instrument, Government Regulation No. 25 of 2021 on the Energy and Mineral Sectors (the “Regulation”),[2] was issued on 2 February 2021.
Due to the wide-ranging scope of the Regulation, we confine our analysis to its key provisions in this ABNR Legal Update.
A. Mining sector
Under the Omnibus Law, the holder of a Production-Operations Mining Business License (“IUP”) or Special Production-Operations Mining Business License (“IUPK”) for coal may be entitled to a complete exemption from the payment of royalties if it processes its coal production domestically, compared to an obligation to pay royalties of 3% to 7% (depending of calorific value and mining method) if it does not process its production domestically. This incentive should help boost investment in the coal processing industry (e.g., coal slurry, coal gasification and coal liquefaction), which is currently less developed than the mineral processing and refining industry.
The Regulation provides that the financial incentive will be given after approval by the Minister of Finance. Although not expressly stated, we believe the Minister of Finance will require a recommendation from the Minister of Energy and Mineral Resources (“MEMR”) before giving such approval as the Regulation stipulates the former should take into account considerations relating to energy sustainability and the fulfillment of industrial needs for raw materials, both of which come within the purview of the MEMR.
The financial incentives are not available for all coal that is produced by a mining license holder but only for certain types of coal that are processed domestically.
B. Geothermal Sector
The Regulation makes provision for the imposition of administrative sanctions and penalties on geothermal businesses that: (i) indirectly use geothermal energy without the required license or in a way that contravenes their license; (ii) fail to commence activities in their allocated work area within the stipulated timeframe; or (iii) fail to comply with the obligations set out in their license or the laws and regulations in general. By contrast, the Geothermal Law only imposes criminal sanctions for non-compliance with licenses.
It is prohibited for a holder of a geothermal license to assign it to a third party. Any violation of this prohibition is subject to administrative sanctions. Further, it is prohibited, once again subject to sanctions, for the holder of a geothermal license to sell its shares on the Indonesia Stock Exchange (“IDX”) without MEMR approval prior to the exploration stage.
While the text of the Regulation in this regard appears to only apply to a geothermal company that is itself listed on the IDX, and not to the holding company of a geothermal company listed on the IDX, it is as yet unclear whether this particular provision will be construed narrowly so as to exclude a holding company or widely so as to include it. The Regulation also fails to explain how the prohibition will be implemented and, more specifically, whether the IDX will be required to monitor transfers of shares of IPB holders so as to ensure that the prohibition is not violated.
C. Power Sector
The Omnibus Law has relaxed the rules in a number of key areas of the power sector, including the rules on operations areas, electricity-sector support services and joint utilization of electricity networks. However, it also imposes new obligations on electricity consumers. These changes have now been further fleshed out in the Regulation.
Under the Regulation, the term “public interest electricity business” covers (i) electricity generation; (ii) electricity transmission; (iii) electricity distribution; and (iv) sale of electricity. These various activities can be integrated and conducted by a single undertaking. For that purpose, the holder of Public Interest Electricity Business License (Izin Usaha Penyedian Tenaga Listrik Untuk Kepentingan Umum) must apply for the allocation of an Operations Area, particularly for the distribution and sale of electricity. The Regulation further stipulates that MEMR must consider the following aspects in determining the allocation of Operations Areas:
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The existing holder of an Operations Area is no longer capable of supplying electricity;
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The existing holder of Operations Area is no longer capable of maintaining the quality and reliability of its electricity supply;
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The existing holder of an Operations Area surrenders a part or all of its Operations Area to MEMR;
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The Operations Area applied for is a remote area that has not been assigned to another Operations Area holder; and/or
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The Operations Area applied for is a designated area for the development of integrated energy sources in accordance with its power needs.
While in practice we expect that PT PLN (Persero), the state power company and largest player in the Indonesian power sector, will continue to dominate the development of new or existing Operations Areas, the considerations listed above could still open opportunities for private investors to proactively seek out prospective Operations Areas for development.
The Regulation also establishes the following licensing and reporting requirements for own-interest power producers (i.e., operators of captive power plants):
> 500 kW – requires an Own-Interest Electricity Business License (Izin Usaha Penyediaan Tenaga Listrik untuk Kepentingan Sendiri) from MEMR or relevant provincial governor, plus a certificate of operational worthiness.
< 500kW - must submit a prior written report to the Minister or relevant governor and satisfy technical specifications, as evidenced by a certificate of operational worthiness and other technical documents to be registered with MEMR.
It interesting to note that the Regulation also imposes various new obligations on electricity consumers, Including obligations to ensure the security of their electricity installations, to use electricity in accordance with its purposes, to pay their electricity bills and to comply with technical requirements in the power sector. A consumer may be sued for any losses suffered by the holder of a Public Interest Electricity Business License if they fail to perform their obligations. This provision may also be regarded as setting out the minimum provisions that should be incorporated in an electricity purchase agreement between a power provider and its customers, including industrial customers.
As regards the electricity support services sector (“Support Services”), a foreign investor that wishes to carry on business in this field has the option of establishing a representative office / Kantor Perwakilan Asing (“KPA”). The Support Services that can be performed by a KPA are restricted to a list of clearly defined activities, including consultation on electricity installations, construction and installation of electricity infrastructure, and the maintenance of power installations. The projects developed by a KPA must also come within the “high cost” category, with a minimum contract value of Rp 100 billion for construction and installation activities.
It should be noted in this regard that the Regulation is somewhat unclear. While it goes into noticeable detail on the rules governing KPA, it is silent as to the role to be played by foreign invested companies (PT PMA) in the electricity support services sector.
As mandated by the Omnibus Law, the Regulation further provides for the joint utilization of power transmission networks by telecommunication, multimedia and IT companies. Such joint utilization must be based on the permission of the network owner, which may only be given if the joint utilization does not have the potential to disrupt electricity supplies. The network owner must submit a report to MEMR on its consent to joint utilization, enclosing certain supporting documents, including the joint utilization agreement and details of the telecommunications equipment to be installed in the power transmission network.
ABNR Commentary
Despite the lack of clarity and question marks regarding some provisions, as mentioned above, the Regulation fills in some obvious gaps in the Omnibus Law relating to the mineral, coal and power sectors. However, there remain a number of outstanding issues that require attention. In this regard, the Regulation incorporates an enabling provision that allows MEMR to take whatever action is required to resolve any issues that are not, or are inadequately, addressed in the Regulation. This is a new type of catch-all “fix-it-up” provision in Indonesian law that is also used in a number of other sectoral regulations issued under the Omnibus Law. It will be interesting to see the extent to which the MEMR, as well as other ministries, avail of this power to make legislative and regulatory changes going ahead.
By partner Mr. Freddy Karyadi and senior associate Mr. Mahatma Hadhi
Source: ABNR
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Saturday, 06 March 21
AUSTRALIAN COAL: SOME WEAKNESS COULD MATERIALIZE AFTER THE WINTER - ING
Newcastle coal prices remain well supported for now, however as we move out of the winter months we would expect prices to come under pressure. Mea ...
Saturday, 06 March 21
ASIA SEABORNE COAL PRICES START TO RETREAT, CHINA-AUSTRALIA DISPUTE LINGERS - REUTERS
There are signs that the price and demand surge for coal during the recent colder-than-expected winter across North Asia is starting to ease, even ...
Thursday, 04 March 21
HEAD OF JBIC SAYS THE JAPANESE BANK WILL NOT FUND NEW COAL PLANT DEVELOPMENT - NHK NEWS
The governor of the Japan Bank for International Cooperation has said that the government-owned financial institution will stop funding new coal-fi ...
Wednesday, 03 March 21
MARKET INSIGHT - INTERMODAL
Following the recent rally to multi year highs of metal-based commodities, amid an unprecedented global economic stimulus, discussions of an emergi ...
Saturday, 27 February 21
CHINA'S BENCHMARK POWER COAL PRICE EDGES DOWN - XINHUA
China’s benchmark power coal price dropped slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge ...
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- Mercuria Energy - Indonesia
- Altura Mining Limited, Indonesia
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Mercator Lines Limited - India
- Electricity Generating Authority of Thailand
- SMC Global Power, Philippines
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- White Energy Company Limited
- Romanian Commodities Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Bhushan Steel Limited - India
- Interocean Group of Companies - India
- Central Electricity Authority - India
- London Commodity Brokers - England
- Attock Cement Pakistan Limited
- Siam City Cement - Thailand
- Savvy Resources Ltd - HongKong
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Coalindo Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- VISA Power Limited - India
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- Meenaskhi Energy Private Limited - India
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Singapore Mercantile Exchange
- Tamil Nadu electricity Board
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Indika Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Australian Commodity Traders Exchange
- CNBM International Corporation - China
- Metalloyd Limited - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Trasteel International SA, Italy
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- Indonesian Coal Mining Association
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- MS Steel International - UAE
- New Zealand Coal & Carbon
- Xindia Steels Limited - India
- Sree Jayajothi Cements Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Sarangani Energy Corporation, Philippines
- Energy Link Ltd, New Zealand
- Baramulti Group, Indonesia
- CIMB Investment Bank - Malaysia
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Dalmia Cement Bharat India
- Karbindo Abesyapradhi - Indoneisa
- Star Paper Mills Limited - India
- Pendopo Energi Batubara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Eastern Coal Council - USA
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Thiess Contractors Indonesia
- Central Java Power - Indonesia
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Sical Logistics Limited - India
- ASAPP Information Group - India
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Kumho Petrochemical, South Korea
- GVK Power & Infra Limited - India
- Minerals Council of Australia
- Mjunction Services Limited - India
- Wilmar Investment Holdings
- Bharathi Cement Corporation - India
- Ministry of Finance - Indonesia
- Maheswari Brothers Coal Limited - India
- Sinarmas Energy and Mining - Indonesia
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Coal and Oil Company - UAE
- Kideco Jaya Agung - Indonesia
- Power Finance Corporation Ltd., India
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- OPG Power Generation Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Leighton Contractors Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- Wood Mackenzie - Singapore
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- Salva Resources Pvt Ltd - India
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- Antam Resourcindo - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Marubeni Corporation - India
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- Grasim Industreis Ltd - India
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Binh Thuan Hamico - Vietnam
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- Bhoruka Overseas - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Price Waterhouse Coopers - Russia
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- Uttam Galva Steels Limited - India
- Australian Coal Association
- Posco Energy - South Korea
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- AsiaOL BioFuels Corp., Philippines
- TeaM Sual Corporation - Philippines
- Indian Oil Corporation Limited
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Semirara Mining Corp, Philippines
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Simpson Spence & Young - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PowerSource Philippines DevCo
- Manunggal Multi Energi - Indonesia
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
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